Experiences

Are credit cards really that bad?

Many financial advisers discourage people to use credit cards. Well, the idea of purchasing something with the money you don’t have is really a big No-No in terms of financial literacy and freedom.

I remember when my mom used to pay only the minimum every time she uses her credit card. She is being charged with interests that she should not be paying if she only pays her credit card bills in full. The bank keeps on increasing her credit limit, and she thinks that’s good because she can buy more, but in reality, she doesn’t have that money in the first place so she should not be spending that much.

What my mom didn’t realized is that the bank increases her credit card limit because they want her to purchase more, then pay more interest charges because they know she cannot pay it in full. Credit Card companies earned from those kind of people. They are called the Revolver – always carry debt.

The Revolvers are the favorite customers of credit card companies. These customers only make the minimum payment or slightly more, and often stretch their payments out for years. Their debt may be large or small, but it is rarely paid off in full. On the occasion when the credit card does get completely paid off, this type of credit card user will usually make new charges. The interest rates and fees these users pay are the bread and butter of the credit card industry. (source: 5 Types of Credit Card Users – Cash Money Life)

She was trapped in the endless loop of paying the minimum plus being charged with endless interest fees, that in the end, she lump-sum her insurance benefit just to pay her card in full. A tragedy that her hard-earned retirement fund doesn’t serve its purpose just because of credit card misuse. She regrets it big time, that she lowers her credit card limit, then just uses it for groceries. No big purchases anymore.

With this kind of credit card users, these are the people to whom the financial advisers evangelizing the evilness of using a credit card.

But if you’re going to think of it, credit cards are just a tool, it is the user’s lack of control and discipline that makes it look bad. It’s like a gun; if used by a cop to protect people, there’s nothing wrong with it. But if given to a thief or a murderer, it becomes a threat.

I am a credit card user for more than a decade now. The moment I was offered by a bank a credit card, I made a promise to myself that I will never do what my mother did. I make sure that I only purchase something that I can afford with cash. Except in the early years of my professional career when I’m just earning a little, and tempted to buy gadgets like laptops that I need to purchase is it in installment, but I made sure that it’s 0% interest and I can pay the monthly fee in full. But now, I stopped purchasing in installments, I always pay it in full. I make sure I have the money in my savings to pay for it. If none, then I don’t buy it.

So why use a credit card if I have a cash available… Well, that depends. If the price of that something that I want to buy has a huge discount when paid in cash instead of using a card (because of transaction fee charged by the bank’s terminal), I pay in cash. But if there’s no difference in price, I use my credit card for the purpose of earning points. I remember when I’m looking for my personal laptop for upgrade, I bumped into this store that they offer the laptop I want for ₱66,000, then I asked if I can have a discount if I pay in cash, they said it will be ₱6,000 less for cash transaction. I tried to look in the internet and other shops on how much is the SRP of that laptop, and it turns out it is really ₱66,000, so a ₱6,000 discount is huge and a great deal. So I paid it for cash.

Then the rest like groceries, utility bills, service subscriptions, and shopping expenses that using a cash transaction doesn’t give any advantage, that is where I’m earning my credit card points. With more than a decade of using my credit card, I already enjoyed the following perks with my accumulated points:

  • Free wristwatch from Rudy Project
  • Free gaming headset (I bought it in Lazada, then use my points to waive the amount in my credit card bill)
  • Free hotel accommodations in the following:
    • Boracay
    • Baguio
    • Tagaytay
    • Staycations in Metro Manila Hotels (like Marco Polo, Azumi, etc)
  • Cashback

There are also non-points perks like:

  • Free food/s for a certain minimum single-receipt transactions
  • Additional inclusive for a certain product purchase
  • Discounts or free tickets on certain events
  • Special deals
  • Rebates

I saved a lot from those perks. Imagine, I can already save with the hotel accommodation when we travel, I got free stuffs, discounts on certain products, events, and even my own credit card bill. If the credit card companies still earns from me while giving me this kind of perks, well, it’s a win-win for the both of us. The goal is not to stop them make money from you, but the goal is to take advantage of the perks that these companies provide to its customers, while still being debt-free and financially healthy.

Just like what they say…

The rich becomes richer, and the poor becomes poorer

Well, I’m not rich, and you don’t have to be rich to take advantage of these. But with a mindset of a rich in handling your finances, you can be richer.

So, do you still think credit cards are bad? Or is it just the way you use it?